Describe the neo-classical quantity theory

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Consider a full employment economy where the government wishes to increase the level of expenditures. The government chooses to finance these expenditures by increasing the money supply from $200 billion to $400 billion-. Further assume that the short run velocity of money is constant.

a. What equation could you use to analyze this situation? Describe the neo-classical (monetarist) quantity theory of money that applies in this situation.

b. What should happen to the level of prices in this particular economy?

Reference no: EM13254769

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